From The ValuVault: ADUs — What Adds Value
Accessory Dwelling Units (ADUs)—casitas, guest suites, carriage houses—are showing up everywhere. But how do they affect price? The short answer: it depends on demand, legality, and the unit’s functionality—and appraisers will look for evidence, not assumptions.
What qualifies as an ADU
A true ADU is a self-contained living space on the same lot as the primary home with:
- Sleeping area
- Kitchen (or kitchenette) suitable for daily use
- Bathroom
- Independent access (not walking through the main home)
- Permitting and code compliance (utility setup per local code; some jurisdictions require or prefer separate metering)
If any of those pieces are missing—or if the space is unpermitted—the market (and the appraisal) may treat it very differently.
When an ADU adds meaningful value
- Legal and documented: Permits, final inspections, and clear zoning compliance reduce risk for buyers and lenders.
- Functional and private: A layout that lives like a small home (not just a bonus room) with good privacy from the main residence.
- Local demand: In areas where multigenerational living, guest accommodations, or rental flexibility are common, premiums are higher.
- Quality and scale: Thoughtful finishes, adequate size, and good light/ventilation make the unit more desirable.
When an ADU adds little—or creates a problem
- Unpermitted or non-conforming: May be ignored in the valuation or flagged as a liability; buyers may price in removal or legalization costs.
- Awkward access or partial kitchens/baths: If it doesn’t live independently, the market may see it as a finished space—not a separate unit.
- Neighborhood mismatch: Where ADUs aren’t common or allowed, buyer demand (and comps) may be limited.
How appraisers handle ADUs
- Find the right comps — closed sales with similar, legal ADUs in the same or competing neighborhoods.
- Adjust for differences — ADU size, finish level, privacy, parking, and rental feasibility.
- Address legality — legal vs. legal non-conforming vs. unpermitted, with commentary on risk and market reaction.
- Document the story — why the ADU contributes (or doesn’t) based on market evidence, not assumptions.
What agents and owners should prep
- Permit history and final approvals (include numbers/dates)
- Plans, photos, and utility details (e.g., separate entrance, heating/cooling, metering per local rules)
- Comparable sales with ADUs and notes on rental demand where relevant
- If rented: dates, terms, and a sensible summary of income history (when applicable)
Key takeaways
- Legal + functional + in-demand = best odds of a meaningful price boost.
- Unpermitted or non-conforming spaces can drag value or add risk.
- Appraisals hinge on comparable ADU sales and clear documentation.
Have questions about an ADU on your listing or purchase?
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